Calculation Example: Customer Lifetime Value (CLV)

The following table shows data for the calculation of the CLV of the
customers of a hairdressing business, which are based on empirical
values. The hairdresser estimates the total expenses for the acquisition
of a new customer at an average of CHF 100.

a) Calculate the Customer Lifetime Value of a customer for the

hairdressing business for the observation period of 6 years.
Assume an interest rate of 8% as shown below.

b) Calculate the CLV for the hair salon, taking into account the
probability of customer churn. The churn rate has averaged 25%
in recent years.

T0 t1 t2 t3 t4 t5 t6
Number of visits per
customer per year - 7 7 7 7 7 7
Average revenue
per visit - 50 60 60 60 70 70
Average variable costs
per visit - 5 6 6 6 7 7
Marketing expenditure
per customer per year - 150 100 80 60 60 80
Discounting factor
r =.08 (1+r) t 1.08 1.17 1.26 1.36 1.47 1.59
Discounted
contribution margin
CLV
without churn
Discounted
contribution margin
with churn
CLV with churn rate of
25%